Intel (INTC - Get Report) added some major fuel to its self-driving car efforts on Monday by agreeing to buy Israeli-based chip firm Mobileye (MBLY) for $15.3 billion in cash, marking the largest purchase of a company in the self-driving car sector.
Few analysts were surprised by the planned tie-up, as the chip giant and the Israeli autonomous driving company already have a partnership in place with automaker BMW to develop self-driving cars. Additionally, Intel in January acquired a 15% stake in digital mapping business Here, which Mobileye has also partnered with.
As part of the deal, Mobileye will continue to operate independently and Intel's automotive division will be folded into the company.
On Tuesday morning, shares of Mobileye were up slightly to $60.77, after spiking on Monday, while Intel stock was down 0.9% to $34.86 on Tuesday.
Wall Street largely applauded the deal, while several analysts downgraded Mobileye stock on the belief that no competing bids will be placed. Here's what they had to say:
Samik Chatterjee, J.P. Morgan (Mobileye - Neutral, PT raised to $63.50 from $50)
"We do not anticipate any significant regulatory hurdles in the closing of the transaction, and so are moving our price target to $63.50 (up from $50 prior), on belief the stock will trade increasingly closer to the offer price through the date the transaction closes (it is estimated to take 9 months). We see broad positive read-across, from the rich multiple paid, to other 'techy' auto parts suppliers, such as Neutral-rated Autoliv (ALV - Get Report) , and Overweight-rated Delphi, Sensata (ST - Get Report) , and Visteon (VC - Get Report) ."
Brian Drab, William Blair (Mobileye - Downgraded to Market Perform from Outperform)
"Other companies with the financial wherewithal and possible strategic interest to offer a higher purchase price for Mobileye could include Apple (AAPL - Get Report) , Alphabet (GOOGL - Get Report) , Microsoft (MSFT - Get Report) and Uber, as well as automotive OEMs and tier-1 suppliers... At about $61.40, shares of Mobileye trade at a slight discount to the proposed purchase price of $63.54. Accordingly, we are lowering our rating to Market Perform."
Tavis McCourt, Raymond James (Mobileye - Downgraded to Market Perform from Outperform, $58 PT)
"While the transaction is not expected to close for another three quarters, we do not believe that a competitive bid is likely to follow given the sizable premium represented by the acquisition price ($63.54/share vs. previous close of $47.27), the sheer size of the acquisition, which limits the number of bidders, and the uniquely synergistic fit between Intel and Mobileye."
David Kelley, Jefferies (Mobileye - Downgraded to Hold from Buy, PT raised to $63.54 from $58)
"While we continue to favor MBLY as the market leader in the rapidly growing ADAS & autonomous vehicle segments, we believe Intel represents the likely high bidder as size ($15B all cash ~ $63.54 per share) likely precludes a majority of alternative bidders while synergies & historical collaboration point to Intel as the best 'strategic fit' acquirer."
Richard Kwas, Wells Fargo (Mobileye - Downgraded to Market perform from Outperform)
"Mobileye has the right to terminate the agreement if it receives an offer in cash that is 10% higher than Intel's offer (equivalent to $69.89/share). We do not expect another suitor to come forward given the size and all-cash requirement."
Betsy Van Hees, Loop Capital (Intel - Buy, $42 PT)
"We weren't surprised by the pending acquisition given INTC's already strong partnership with MBLY and view it as a considerable positive as this leap frogs INTC's position within the nascent autonomous car market and opens INTC up to $70B system, data, and services TAM by 2030."
Ruben Roy, MKM Partners (Intel - Buy, $42 Price Target)
"While Intel has previously partnered with Mobileye on autonomous driving platforms and has worked with various automotive manufacturers and component suppliers such as BMW and Delphi Automotive (DLPH - Get Report) , INTC's core automotive exposure, to date, has been limited to infotainment systems. We believe that the deal could catalyze quicker adoption of autonomous driving technologies."
Rick Schafer, Oppenheimer (Intel - Perform)
"We view the deal as a logical, albeit defensive, step as INTC boosts a perceived slow move into autonomous driving/AI. In addition to complementary IP, MBLY will bring massive data from hours of driving accumulated from MBLY's work with Tesla (TSLA - Get Report) and others. Overall, while we view the deal as strategic, limited NT impact to the model leaves our thesis unchanged as INTC slowly diversifies from the secularly challenged PC market."